Risks
The transport and logistics industry is facing a number of challenges that are a direct result of globalization and the rapid development of countries such as Brazil, Russia, India and China.
These challenges can be broadly grouped into five areas. These grouping are:
1. Costs – transportation and logistics is a highly competitive industry with margins for traditional services rarely exceeding 4% of turnover;
2. Risks – increasing weather, geological, geo-political and supply uncertainties are creating significant problems as supply chains grow longer and more complex;
3. Demographics – changing global demographics are driving companies to move into non-traditional markets where supply chain infrastructures are less mature and operating practices less advanced;
4. Energy – length, speed and tonnage transported determine the energy consumption of supply operaitons. As supply chains have grown longer and more complex their demands for scarce energy resources has increased raising risks associated with energy price variations as well as availability;
5. Environment – transport and logistics operations have a large impact on the environment because of CO2 emissions from the combustion of fossil fuels and wastes from packaging and operations.
The concept of risk in supply chain operations has gained significant attention in the past few years. Initially, this was a result of the terrorist attacks on 11 September 2011. Focus in the risk management literature at this time was on how to avoid disruptions should another attack similar to that on 9/11 occur and cause international transport operations to be disrupted. In addition, risk management began to focus on certification of cargos so that they could pass swiftly through the new inspection processes that were established by countries after the 9/11 event to ensure that containerized shipments did not contain explosives or other weapons that might be used in a terrorist attack.
Work performed by RAND, a US based research and development “think tank”, is indicative of the thinking that typifies supply chain risk considerations based on security issues. RAND characterized international supply chain operations as having functions in the secure and reliable movement of goods (RAND, 2004):
1. Efficiency – supply chain operations have evolved and been improved through the use of containers, container shipments, automated handling operations, etc. to ensure that more goods can be moved faster and at lower overall costs throughout the world;
2. Reliability – shipments must be delivered as and when expected without loss due to theft of damage;
3. Transparency – the goods moving through a supply chain must be legal to transport and traceable by shippers, consumers and regulatory bodies;
4. Fault tolerance – the supply chain must be capable of absorbing failures in links in the chain without disrupting the overall flow of materials in the chain;
5. Resilience – should a fault occur in any link in the chain, the supply chain must be able to quickly return to normal operations after the fault has been corrected.
The reliability, transparency, fault tolerance and resilience characteristics of a supply chain design are directly related to the ability to manage security and risk in a supply chain. Efficiency characteristics, however, may conflict with these other four characteristics depending on the focus of the shipping organization.
More recent considerations of supply chain risk have emphasized environmental and geological disruption potentials. These considerations have arisen because of the recent disruptions to supply chain operations caused by the SARS flu epidemic, Icelandic volcano eruption, the Japanese tsunami and a number of severe weather events across the globe (Cranfield, 2003).
Risk issues require supply chain operators to trade off efficiency considerations against effectiveness considerations. Efficiency argues for single link designs and lowest cost approaches to operations. Effectiveness considerations require the supply chain operator to take into account potential disruption probabilities and develop designs that allow the supply of goods to continue to flow even when a disruption occurs. No matter what tradeoffs are made in the design of the supply chain, the operator must be able to monitor the flow of goods in real time so as to be able to react to any disruption and re-plan the goods flow to come as close to contractual commitments as is possible.
The ICT required for this type of real time tracking and event monitoring is complex and costly due to the unique nature of supply chain operations and the multiple entities that must be integrated to track a single shipment of goods from a source location to a destination. Small players, and even many large players, in the supply chain do not have the capital or technical capabilities to fully address these complexities. This fact means that a significant portion of the international supply chain is “dark” and the risk of disruption from any cause is much higher than most shippers and consumers realize.
